Acting Comptroller Updates Congress on OCC Priorities and Initiatives

In testimony before the House Financial Services Committee, Acting Comptroller Michael J. Hsu reviewed the Office of the Comptroller of the Currency's ("OCC") current priorities and provided an update on regulatory initiatives.

As to OCC priorities, Mr. Hsu highlighted:

• Guarding Against Complacency. Mr. Hsu emphasized the importance of vigilance in risk management, stating that banks "need to successfully manage traditional risks, such as credit, liquidity, and interest rate risks, as well as prepare for emerging risks and tail risk events." He said that banks must focus on operational resilience to adapt to, withstand or recover from disruptions caused by both external events like natural disasters and internal weak systems, controls or risk management. 
• Promoting Fairness. Mr. Hsu highlighted efforts to address discrimination in the federal banking system, including (i) OCC guidance to assist banks in managing risks associated with overdraft protection programs, (ii) initiatives to target "credit invisibles" and (iii) the publication by the Federal Financial Institutions Examination Council of examination principles on bias in residential lending. 
• Adapting to Digitalization. Mr. Hsu underscored risks involving the growing use by banks of third parties. He emphasized that poor third-party risk management can hurt consumers, weaken banks and contribute to an unlevel playing field.
• Managing Climate-Related Financial Risks. Mr. Hsu said that the OCC is working with supervised institutions to better understand their "climate-related financial risk management capabilities and their efforts to identify, manage and control these risks." Mr. Hsu reported that large banks have been making progress to incorporate climate-related financial risks into their risk management frameworks and policies. 

On regulatory initiatives, Mr. Hsu discussed:

• Revisions to Capital Rules for Large Banks. Mr. Hsu said the OCC, the Federal Reserve and the FDIC are continuing to consider stakeholder comments received in response to the July 2023 proposal to update the risk-based capital requirements applicable to large banking organizations with significant trading activity. (See related coverage.)
• Community Reinvestment Act Final Rule. Mr. Hsu summarized the current status of an interagency final rule under the Community Reinvestment Act to combat redlining and promote credit access in low- and moderate-income areas. (See related coverage.) In February 2024, trade groups sued to prevent its implementation. A district court judge subsequently issued a preliminary injunction in March, delaying the rule's enforcement and applicability, which led the agencies to appeal in April. (See related coverage.) In the interim, Mr. Hsu said that the OCC, continues to assess banks’ CRA performance under its previous regulatory framework.
• Business Combinations Under the Bank Merger Act. Mr. Hsu described an OCC collaboration with the Department of Justice to update the analytical frameworks used in bank merger reviews under the Bank Merger Act. He discussed proposed changes to enhance transparency in OCC review processes for business combinations involving national banks and federal savings associations. (See related coverage.) He noted the accompanying policy statement that clarifies the principles guiding the OCC's evaluations of bank mergers, addressing financial stability and other key factors. Additionally, he said the proposal considers circumstances under which a public meeting might be held for a merger application. The comment period for this proposal has been extended to June 15, 2024.
• Incentive Compensation. Mr. Hsu also outlined a recent proposed rulemaking by the OCC, FDIC and Federal Housing Finance Agency to address concerns about potentially risky incentive compensation as mandated by the Dodd-Frank Act. (See related coverage.)